If you itemize and have high unreimbursed medical expenses, you may be able to deduct some of your expenses, but only if they exceed a substantial income floor (17.1).

A different rule applies if you are self employed and paid health insurance premiums. As a self-employed person, you do not have to itemize your premiums; you can claim 100% of the premiums as an above-the-line deduction directly from gross income (12.2).

Carefully review the list of dductible expenses in this chapter so that you do not overlook any deductible expenses. Include payments of doctors’ fees, health-care premiums, prescription medicines, travel costs for obtaining medical care, and eligible home improvements.

If you are married, both you and your spouse work, and one of you has substantial medical expenses, filing separate returns may result in a lower overall tax.

Qualifying long-term-care expenses may be treated as medical expenses subject to the AGI floor, including a specified deductible amount of premiums paid for a qualifying long-term-care contract (17.15).

Deductible contributions to health savings accounts (HSAs) and Archer MSAs may be available to individuals covered by high deductible health plans; see Chapters 12 and 41.

Deductible medical expenses are not subject to the reduction of itemized deductions that applies to certain higher income taxpayers (13.7).

17.1 Medical and Dental Expenses Must Exceed AGI Threshold

The tax law provides only a limited opportunity to deduct unreimbursed medical and dental costs for you, your spouse (17.6), and your dependents (17.7). Although a wide range of expenses are potentially deductible (Table 17-1) if you itemize expenses on Schedule A of Form 1040, your deduction may be completely disallowed or severely limited because of the adjusted gross income (AGI) floor. Only expenses that exceed the floor may be claimed. AGI is the amount shown on Line 37 and Line 38 of your Form 1040 (12.1).

Caution: For years before 2017, the deduction floor was 7.5% of AGI for taxpayers age 65 or older at the end of the year. For taxpayers under age 65, the Affordable Care Act (Obamacare) increased the floor to 10% of AGI starting with 2013 returns.

The 7.5% of AGI floor for taxpayers age 65 and older expired at the end of 2016, so without legislation from Congress, the 2017 deduction floor would be 10% of AGI for all taxpayers, regardless of age. However, when this book was completed, it appeared likely that Congress would enact legislation allowing all taxpayers, regardless of age, to apply the 7.5% of AGI floor on 2017 returns. See the e-Supplement at jklasser.com for an update.

Do your expenses count as paid in 2017? On your 2017 return, you may deduct expenses paid in 2017 in cash or by a check you mail in 2017 (unless the check is postdated to 2018) for yourself, your spouse (17.6), or your dependents (17.7). The 2017 deduction includes payments made in 2017 for medical services provided before 2017. If you paid medical or dental expenses by credit card in 2017, the deduction is allowed for 2017, although you do not pay the charge bill until 2018. If you pay expenses online, the payment date shown on your online bank statement governs. If you borrow to pay medical or dental expenses, you claim the deduction in the year you use the loan proceeds to pay the bill, even if you do not repay the loan until a later year.

17.2 Allowable Medical and Dental Care Costs

In determining whether you have paid deductible medical expenses exceeding the AGI floor (17.1), include the cost of diagnosis, cure, mitigation, treatment, or prevention of disease, or any treatment that affects a part or function of your body (Table 17-1). Also include qualifying costs you paid for your spouse (17.5) and your dependents (17.6).

Expenses that are solely for cosmetic reasons are not deductible. Also, expenses incurred to benefit your general health are not deductible even if recommended by a physician (17.3).

Medicine and drugs. To be deductible, medicines and drugs other than insulin must be obtainable solely through a prescription by a doctor. Insulin is deductible even though a prescription may not be required. You may not deduct the cost of over-the-counter medicines and drugs, such as aspirin and other cold remedies, even if you have a doctor’s prescription for them.

Marijuana is not deductible even if prescribed by a doctor in a state allowing the prescription.

A prescribed drug brought in or shipped into the U.S. from another country is not deductible unless the FDA (Food and Drug Administration) allows that drug to be legally imported by individuals.

Diagnostic tests. The IRS treats unreimbursed diagnostic procedures as deductible medical expenses (subject to the AGI floor), even if you had no symptoms of illness and you underwent the test without a physician’s recommendation. For example, the cost of an annual physical performed by a doctor and related laboratory tests is a medical expense, whether or not you were feeling ill. Similarly, a full body scan is a deductible diagnostic procedure, whether or not a physician recommended it. Where a procedure does not have a nonmedical function, a physician’s recommendation is not necessary. It also does not matter if a less expensive alternative to the full body scan is available. Finally, a home pregnancy test qualifies as a medical expense even though its purpose is not to detect disease but to test for the healthy functioning of the body.

Health insurance premiums. Premiums you pay for health insurance covering yourself, your spouse (17.5) and your dependents (17.6) generally qualify for a deduction, see 17.8 for limitations.

Vitamins and nutritional or herbal supplements. The IRS does not allow a deduction for the cost of vitamins, nutritional or herbal supplements, or “natural” medicines unless a medical practitioner recommends them as treatment for a specific medical condition diagnosed by a physician. Otherwise, they are considered to be for maintaining your general health rather than for medical care.

Stop-smoking programs. The cost of smoking cessation programs is a deductible medical expense, as well as nicotine withdrawal drugs that require a physician’s prescription. Over-the-counter nicotine patches and gums are not deductible.

Exercise and weight-reduction programs. If you incur costs for such programs to improve your general health, the costs are not deductible even if your doctor has recommended them. However, if your doctor has recommended a program as treatment for a specific condition, such as heart disease or hypertension, the IRS allows a deduction for the cost.

The IRS considers obesity a disease. If a physician has made a diagnosis of obesity, the costs of joining a weight-loss program and additional fees for meetings are eligible medical expenses. However, reduced-calorie diet foods that are substitutes for foods normally consumed are not deductible even if they are part of the program; see “Special foods” below.

Special foods. The IRS position on deducting the cost of “special foods” is unclear. The IRS has long taken the position in Publication 502 that the excess cost of special foods or beverages over a regular diet is not a deductible medical expense if the special foods “satisfy normal nutritional needs”, even if a physician substantiates that a special diet is needed to alleviate or treat an illness. This IRS position not only bars a deduction for low-calorie foods, on the grounds that they substitute for a “normal” diet, but it could also block a deduction for diets required to deal with conditions such as Celiac disease. Although gluten-free foods may have a clear medical purpose as diagnosed by a physician,such foods obviously “satisfy normal nutritional needs” and so for that reason the IRS could deny a deduction for the excess cost.

In response to public pressure, the IRS informally suggested that it might change the language of Publication 502 and follow the standard used by the Tax Court, which allows a deduction for the excess cost of a special diet over ordinary food provided the medical need for it is established by a physician; see the Examples below. However, when this book was completed, the IRS had not eliminated its “normal nutritional needs” restriction.

Infant formula. Applying its “nutritional needs” test, the IRS in a private ruling denied a mother’s deduction for the cost of infant formula for her healthy child. Although the mother had a medical reason for buying the formula—she was unable to breastfeed her baby following a double mastectomy—the formula was food satisfying the child’s ordinary nutritional needs, and therefore was a nondeductible personal expense.

Portion of monthly service fees paid to retirement community. The portion of the monthly fees that is allocable to medical care is a deductible medical expense (34.9).

Advance payment for lifetime care in retirement community. If you pay a life-care fee or “founder’s fee” either monthly or in a lump sum to a retirement community, the portion allocable to future medical care may be included as a current medical expense (34.9).

Advance payments for lifetime care of disabled dependent. You can treat as a current medical expense a nonrefundable advance payment to a private institution for the lifetime care and treatment of your physically or mentally impaired child upon your death or when you become unable to provide care. The nonrefundable payment must be a condition for the institution’s future acceptance of your child.

17.3 Nondeductible Medical Expenses

The most common nondeductible medical expense is the cost of over-the-counter medicines and drugs, such as aspirin and other cold remedies. A deduction for over-the-counter medicines is disallowed even if you have a doctor’s prescription (17.2). Expenses incurred to improve your general health, such as exercise programs not related to a specific condition, are not deductible (17.2 and Table 17-2).

Cosmetic procedures. A medical expense deduction is allowed for cosmetic surgery if it is necessary to improve a disfigurement related to a congenital abnormality, disfiguring disease, or an accidental injury. For example, a deduction is allowed for breast reconstruction surgery, as well as breast prosthesis, following a mastectomy as part of a treatment for cancer.

You may not deduct the cost of cosmetic surgery or other procedures that do not have a medical purpose. Thus, face lifts, hair transplants, electrolysis, teeth-whitening procedures, and liposuction intended to improve appearance are generally not deductible. However, in one case, the Tax Court allowed an exotic dancer to claim a depreciation deduction for breast implants essential for her business (19.10).

Future medical care. Generally, you cannot include as a current medical expense payment for medical care that is to be provided substantially beyond the end of the year. However, advance payments for the care of a disabled dependent or the portion of a life-care fee or “founder’s fee” to a retirement community that is allocable to future medical care is a currently deductible expense (17.2).

17.4 Reimbursements Reduce Deductible Expenses

Insurance or other reimbursements of your medical costs reduce your potential medical deduction. Reimbursements for loss of earnings or damages for personal injuries and mental suffering do not have to be taken into account. A reimbursement first reduces the medical expense for which it is paid. The excess is then applied to your other deductible medical costs. See Example 1 below.

Personal injury settlements or awards. Generally, a cash settlement recovered in a personal injury suit does not reduce your medical expense deduction. The settlement is not treated as reimbursement of your medical bills. But when part of the settlement is specifically earmarked by a court or by law for payment of hospital bills, the medical expense deduction is reduced.

If you receive a settlement for a personal injury that is partly allocable to future medical expenses, you reduce medical expenses for these injuries by the allocated amount until it is used up.

Fake claims. Medical reimbursements for fake injury claims are treated as taxable income; see Example 2 below.

Reimbursements in excess of your medical expenses. If you paid the entire premium for health insurance, you are not taxed on payments from the plan even if they exceed your medical expenses for the year. If you and your employer each contributed to the policy, you generally have to include in income that part of the excess reimbursement that is attributable to employer premium contributions not included in your gross income; see Examples 2–4 below. The taxable excess reimbursement must be reported as “Other income” on Line 21 of Form 1040.

However, you do not have to report any excess reimbursements that are tax-free payments for permanent disfigurement or loss of bodily functions (3.2).

If your employer paid the total cost of the policy and the contributions were not taxed to you, you report as income all of your excess reimbursement, unless it covers payment for permanent injury or disfigurement (3.2).

For the treatment of insurance reimbursements of long-term care costs, see 17.15.

Reimbursement in a later year may be taxed. If you took a medical expense deduction in one year and are reimbursed for all or part of the expense in a later year, the reimbursement may be taxed in the year received. The reimbursement is generally taxable income to the extent the deduction reduced your tax in the prior year. See the details for figuring taxable income on a recovery of a prior deduction in Chapter 11 (11.6).

17.5 Expenses of Your Spouse

Subject to the AGI floor (17.1), you may deduct as medical expenses your payments of medical bills for your spouse if you were married either when your spouse received the medical services or at the time you paid the expenses. That is, you may deduct your payment of your spouse’s medical bills even though you are divorced or widowed, if, at the time the expenses were incurred, you were married. Furthermore, if your spouse incurred medical expenses before you married and you pay the bills after you marry, you may deduct the expense.

Filing separately in community property states. If you and your spouse file separately and live in a community property state, any medical expenses paid out of community funds are treated as paid 50% by each of you. Medical expenses paid out of separate funds of one spouse can be deducted only by that spouse.

17.6 Expenses of Your Dependents

You may deduct your payment of medical bills for your children or other dependents, subject to the AGI floor (17.1). You may deduct the expenses of a person who was your dependent (your qualifying child or qualifying relative; 21.1) either at the time the medical services were provided or at the time you paid the expenses. That person must have been a U.S. citizen or national, or a resident of the United States, Canada, or Mexico, but this test does not apply to an adopted child who lived with you.

In determining whether a person is your “dependent” for medical expense purposes, you may be able to claim the expenses of someone who is not your dependent (either your qualifying child or qualifying relative) for exemption purposes (21.1). Specifically, you may deduct your payment of medical costs for a person who cannot be claimed as your dependent for one of the following reasons: (1) the person is your child who is claimed as a dependent by the other parent under the special rules (21.7) for divorced/separated parents; see below, (2) the person has gross income exceeding the limit for qualifying relatives ($4,050 for 2017), (3) the person files a joint return with their spouse, or (4) you are the dependent of another taxpayer and thus are barred from claiming any dependents on your return.

The other dependent tests for a qualifying child or a qualifying relative must be met. For example, to claim your payment of medical expenses for your parent, or for your child who is not your qualifying child (21.3), you must pay over 50% of his or her support under the qualifying relative rules. See Examples 1–3 below. A child may not deduct medical expenses paid with his or her parent’s welfare payments; see Example 4 below.

Divorced and separated parents. You may be able to deduct your payment of your child’s medical costs, even though your ex-spouse is entitled to claim the child as a dependent (21.7). For purposes of a 2017 medical deduction, the child is considered to be the dependent of both you and the child’s other parent if (1)you are divorced or legally separated under a court agreement, separated under a written agreement, or married but living apart during the last six months of 2017; (2) the child was in the custody of one or both of you for more than half of 2017; and (3) together you provided more than half of the child’s 2017 support.

Adopted children. You may deduct medical expenses of an adopted child if you may claim the child as a dependent either when the medical services are rendered or when you pay the expenses. An adopted child is treated as your child for dependent purposes when a court has approved the adoption or the child is lawfully placed with you for legal adoption.

If you reimburse an adoption agency for medical expenses it paid under an agreement with you, you are considered to have paid the expenses. But if the reimbusement is for medical services that were provided and paid for before you began your adoption negotiations, you may not deduct your payment.

You may not deduct medical expenses for services rendered to the natural mother of the child you adopt.

Multiple support agreements. If you may claim a person as your dependent under a multiple support agreement (21.6), your unreimbursed payments of that person’s medical expenses are deductible. Even if you may not claim the dependent exemption for 2017 because the person has a gross income of $4,050 or more, you may still deduct your 2017 payments of his or her medical expenses provided the other multiple support agreement tests are met.

17.7 Decedent’s Medical Expenses

If you pay the medical expenses of your deceased spouse or dependent (17.7), you may claim the payment as a medical expense in the year you pay the expenses, whether that is before or after the person’s death.

If the executor or administrator of the estate pays the decedent’s medical expenses within one year after the date of death, an election may be made to treat the expenses as if the deceased had paid them in the year the medical services were provided. The executor or administrator may file an amended return for the year the services were provided and claim them as a medical deduction for that year, assuming the period for filing the amended return (47.2) has not passed.

If the election is made by the executor to claim the expenses as an income tax deduction, and an estate tax return is filed, the expenses may not also be claimed as a deduction on the estate tax return. The executor must file a statement with the decedent’s income tax return that the expenses have not been deducted on the estate tax return and the estate waives its right to deduct them for estate tax purposes.

If medical expenses are claimed as an income tax deduction, the portion of the expenses that are not allowed because they are below the AGI floor (17.1) may not be claimed as an estate tax deduction if an estate tax return is filed. Although the expenses were not actually deducted, the IRS considers them to be part of the overall income tax deduction.

17.8 Premiums for Health Insurance

Unless you are self-employed and qualify for the 100% above-the-line deduction (discussed below), health insurance premiums are deductible only as an itemized medical expense on Schedule A (Form 1040), subject to the AGI floor (17.1). Include premiums you paid for health insurance that covers hospital, surgical, drug costs, and other medical expenses for you, your spouse (17.6), and your dependents (17.7). Also deductible are premiums paid for contact lens replacement insurance. Deductions may be claimed for membership payments in associations furnishing cooperative or free-choice medical services, group hospitalization, or clinical care policies, including HMOs (health maintenance organizations) and medical care premiums paid to colleges as part of a tuition bill, if the amount is separately stated in the bill.

You may deduct premiums for Medicare Part B supplemental insurance and Medicare Part D prescription drug insurance. Payroll withholdings for Medicare Part A are not medical expenses, but premiums for voluntary coverage under Medicare (Part A) are deductible by those over age 65 who are not covered by Social Security.

Premiums paid before you reach age 65 for medical care insurance for protection after you reach age 65 are deductible in the year paid if they are payable on a level payment basis under the contract (1) for a period of 10 years or more or (2) until the year you reach age 65 (but in no case for a period of less than five years).

Premiums for qualifying long-term care policies are deductible subject to limitations (17.15).

Nondeductible premiums. You may not deduct premiums for a policy guaranteeing you a specified amount each week (not to exceed a specified number of weeks) in the event you are hospitalized. Also, no deduction may be claimed for premiums paid for a policy that compensates you for loss of earnings while ill or injured, or for loss of life, limb, or sight. If your policy covers both medical care and loss of income or loss of life, limb, or sight, no part of the premium is deductible unless (1) the contract or separate statement from the insurance company states what part of the premium is allocated to medical care and (2) the premium allocated to medical care is reasonable.

You may not deduct part of the car insurance premiums for medical insurance coverage for persons injured by or in your car where the premium covering you, your spouse (17.6), or your dependents (17.7) is not stated separately from the premium covering medical care for others.

You generally cannot deduct premiums you pay for covering someone who is not your dependent, even if that person is your child (such as your non-dependent child under age 27 who is included on your policy). However, if that person is not your dependent only for the reasons specified in 17.7, you may deduct the premiums paid for that person.

Self-employed deduction. If you were self-employed in 2017 you may claim a special deduction on Form 1040, Line 29, for 100% of health insurance premiums you paid for yourself, your spouse, and your dependents. The deduction is also allowed if you received wages from an S corporation in which you were more than a 2% shareholder, you were a general partner, or you were a limited partner who received guaranteed payments.

The above-the-line deduction (12.2) may not be claimed for any month that you were eligible for coverage under an employer’s subsidized health plan, including a plan of your spouse’s employer. Also, the deduction may not exceed your net earnings from the business under which the health premiums are paid.

Any balance of premiums not deductible because you had coverage under a subsidized employer health plan may be claimed as an itemized medical expense subject to the AGI floor (17.1).

17.9 Travel Costs May Be Medical Deductions

Travel costs to a doctor’s office, hospital, or clinic where you, your spouse, or your dependents receive medical care are deductible medical expenses, subject to the AGI floor (17.1). Commuting to work is not a medical expense, even if your condition requires you to make special travel arrangements.

Deductible travel includes fares for buses, taxis or trains, and the costs of hiring a car service or ambulance to obtain medical care. Plane fares to another city are allowed by the IRS so long as obtaining medical care is the primary purpose of the trip; see below for lodging expense rule.

If you used your automobile in 2017 to obtain medical care, you may include in your medical expenses a flat IRS rate of 17 cents a mile. In addition, you may deduct parking fees and tolls. If, however, auto expenses exceed this standard mileage rate, you may deduct your actual out-of-pocket costs for gas, oil, repairs, tolls, and parking fees. Do not include depreciation, general maintenance, or car insurance. The cost, as well as the operating and repair costs, of a wheelchair, autoette, or special auto device for a handicapped person is deductible if not used mainly for commuting.

Medical conferences. Travel costs and admission fees to a medical conference are deductible medical expenses if an illness suffered by you, your spouse, or your dependents is the subject of the conference. For example, the IRS allowed a parent to deduct the registration fees and cost of traveling to a medical conference dealing with treatment options for a disease suffered by her dependent child. The child’s doctor had recommended the conference. During the conference, most of the parent’s time was spent attending sessions on her child’s condition. Any recreational activities were secondary. If the parent had attended the conference because of her own condition the same deductions would have been allowed.

Lodging and meals while attending the conference are not deductible; these are allowed only if treatment is received at a licensed hospital or similar facility, as discussed below.

Lodging expenses. If you are receiving inpatient care at a hospital or similar facility, your expenses, including lodging and meals, are deductible. If you are not an inpatient, lodging expenses while away from home are deductible as medical expenses if the trip is primarily to receive treatment from a doctor in a licensed hospital, hospital-related outpatient facility, or a facility equivalent to a hospital. Meal expenses are not deductible unless they are paid as part of inpatient care.

The deduction for lodging while receiving treatment as an outpatient at a licensed hospital, clinic, or hospital-equivalent facility is limited to $50 per night per person. For example, the limit is $100 if a parent travels with a sick child. The IRS ruled that the $50 allowance could be claimed by a parent for a six-week hotel stay while her eight-year-old daughter was treated in a nearby hospital for serious injuries received in an automobile accident. The mother’s presence was necessary so that she could sign release forms.

Deductible Transportation Costs

Examples of travel costs that have been treated as medical expenses by IRS rulings or court decisions are:

• Nurse’s fare if nurse is required on trip
• Parent’s fare if parent is needed to accompany child who requires medical care
• Parent’s fare to visit his child at an institution where the visits are prescribed by a doctor
• Trip to visit specialist in another city
• Airplane fare to a distant city in which a patient used to live to have a checkup by a family doctor living there. That he could have received the same examination in the city in which he presently lived did not bar his deduction.
• Trip to escape a climate that is bad for a specific condition. For example, the cost of a trip from a northern state to Florida during the winter on the advice of a doctor to relieve a chronic heart condition is deductible. The cost of a trip made solely to improve a post-operative condition by a person recovering from a throat operation was ruled deductible.
• Travel to an Alcoholics Anonymous club meeting if membership in the group has been advised by a doctor
• Disabled veteran’s commuting expenses where a doctor prescribed work and driving as therapy
• Wife’s trip to provide nursing care for an ailing husband in a distant city. The trip was ordered by her husband’s doctor as a necessity.
• Driving prescribed as therapy
• Travel costs of kidney transplant donor or prospective donor

Nondeductible Transportation Costs

• Commuting to work
• Trip for the general improvement of your health
• Traveling to areas of favorable climates during the year for general health reasons, rather than living permanently in a locality suitable for your health
• Meals while on a trip for outpatient medical treatment—even if cost of transportation is a valid medical cost. However, a court has allowed the deduction of the extra cost of specially prepared food.
• Trip to get “spiritual” rather than medical aid. For example, the cost of a trip to the Shrine of Our Lady of Lourdes is not deductible.
• Moving a family to a climate more suitable to an ill mother’s condition. Only the mother’s travel costs are deductible.
• Moving household furnishings to area advised by physician
• Operating an auto or special vehicle to go to work because of a disability
• Convalescence cruise advised by a doctor for a patient recovering from pneumonia
• Loss on sale of car bought for medical travel
• Medical seminar cruise taken by patient whose condition was reviewed by physicians taking the cruise

17.10 Schooling for the Mentally or Physically Disabled

You may include as medical expenses subject to the AGI floor (17.1) the costs of sending on a doctor’s recommendation a mentally or physically disabled dependent to a school or institution with special programs to overcome or alleviate his or her disability. Such costs may cover:

• Teaching of Braille or lip reading
• Training, caring for, supervising, and treating a mentally retarded person
• Training for a child with dyslexia
• Cost of meals and lodgings, if boarding is required at the school
• Costs of regular education courses also taught at the school, provided they are incidental to the special courses and services provided to overcome the disability

The school must have professional staff competent to design and supervise a program for helping your dependent overcome his or her disability. The fact that a particular school or camp is recommended for an emotionally disturbed child by a psychiatrist will not qualify the tuition as a deduction if the school or camp has no special program geared to the child’s specific personal problem. The IRS allows a deduction for the costs of maintaining a mentally handicapped person in a home specially selected to meet the standards set by a psychiatrist to aid in an adjustment from life in a mental hospital to community living.

Payment for future medical care expenses is deductible if immediate payment is required by contract.

17.11 Nursing Homes

Your payment for medical services, meals, and lodging to a nursing home, convalescent home, home for the aged, or similar facility is treated as a medical expense subject to the AGI floor (17.1) if you, your spouse, or dependent is confined for medical treatment.

If obtaining medical care is not the main reason for admission, but you can show the part of the cost covering actual medical and nursing care, that amount is deductible, but not the cost of meals and lodging.

Establishing medical purpose. The following facts are helpful in establishing the full deductibility of payments to a nursing home, convalescent home, home for the aged, or sanitarium:

• The patient entered the institution on the direction or suggestion of a doctor.
• Attendance or treatment at the institution had a direct therapeutic effect on the condition suffered by the patient.
• The attendance at the institution was for a specific ailment rather than for a “general” health condition. Simply showing that the patient suffers from an ailment is not sufficient proof that he or she is in the home for treatment.

In an unusual case, a court allowed a medical expense deduction for apartment rent of an aged parent; see the following Example.

17.12 Nurses’ Wages

Wages or fees paid for nursing services are medical expenses subject to the AGI floor (17.1). Include any Social Security or Medicare (FICA) tax, federal unemployment (FUTA) and state unemployment tax that you pay for the nurse. A nurse does not have to be registered or licensed so long as he or she provides you with nursing services. Nursing services include giving medications, changing dressings, and bathing and grooming the patient. If the nurse also performs personal or household services, you generally can deduct only that part of the pay attributable to nursing services for the patient. However, if the patient is considered chronically ill, certain maintenance or personal care services are deductible as long-term care services (17.15).

The cost of an attendant’s meals is included in your medical expenses. Divide total food costs among the household members to determine the attendant’s share.

The salary of a clerk hired specifically to relieve a wife from working in her husband’s store in order to care for her ill mother was allowed as a medical expense; see the Ungar Example (17.11).

Costs eligible for tax credit. If, in order to work, you pay a nurse to look after a physically or mentally disabled dependent, you may be able to claim a credit for all or part of the nurse’s wages as a dependent care expense (25.4). You may not, however, claim both a credit and a medical expense deduction. First, you claim the nurse’s wages as a dependent care cost. If not all of the wages are allowed as dependent care costs because of the expense limits (25.5), the remaining balance is deductible as a medical expense.

17.13 Home Improvements as Medical Expenses

A disease or ailment may require the construction or installation of special equipment or facilities in a home: A heart patient may need an elevator to carry him or her upstairs; a polio patient, a pool; and an asthmatic patient, an air cleaning system.

Subject to the AGI floor (17.1), you may deduct the full cost of equipment installed for a medical reason if it does not increase the value of your property, as, for example, the cost of a detachable window air conditioner. Where equipment or home improvement increases the value of your property, only the cost in excess of the increase in value to the home may be treated as a medical expense. This increased-value test does not apply to certain structural changes to a residence made to accommodate a disabling condition, as discussed below. If the equipment does not increase the value of the property, its entire cost is deductible, even though it is permanently fixed to the property.

The expense of maintaining and operating equipment installed for medical reasons may be claimed as a medical expense. This is true even if some or all of the cost does not qualify for a deduction because it must be reduced by the increase in value to your home. For example, if a heart patient installs an elevator in his home on the advice of his doctor, but an appraisal shows that the elevator increased the value of the home by more than the cost of the elevator, the cost would not be a medical expense. However, the cost of electricity to operate it and any maintenance costs are medical expenses as long as the medical reason for the elevator continues.

Certain structural improvements to accommodate disability fully taken into account. The increased-value test does not apply to structural changes made to a residence to accommodate your disabled condition, or the condition of your spouse or dependents who live with you. Eligible expenses include adding ramps, modifying doorways and stairways, installing railings and support bars, and altering cabinets, outlets, fixtures, and warning systems. Such improvements are treated for medical deduction purposes as not increasing the value of the home. Lifts, but not elevators, also are in this category. The full cost of such improvements is added to other deductible expenses and the total is deductible to the extent that it exceeds the AGI floor.

Prepaid home construction costs. Zipkin suffered from multiple chemical sensitivity syndrome and built a house with special filtering and ventilation systems. The cost of the special features exceeded the fair market value of the home by $645,000. She claimed a deduction for the full amount when the house was completed. The IRS disallowed the deduction for the construction costs incurred in the years before the home was completed. Zipkin successfully argued before a federal district court that the construction costs should be treated as prepaid medical expenses that are deductible in the year medical benefits are received. The federal court allowed Zipkin to deduct the full amount in the year the home became habitable.

Deducting the cost of a swimming pool. If swimming is prescribed as physical therapy, the cost of constructing a home swimming pool may be partly deductible as a medical expense but only to the extent the cost exceeds the increase in value to the house. However, the IRS is likely to question any deduction because of the possibility that the pool may be used for recreation. If you can show that the pool is specially equipped to alleviate your condition and is not generally suited for recreation, the IRS will allow the deduction unless the expense is considered to be “lavish or extravagant.” For example, the IRS allowed a deduction for a pool constructed by an osteoarthritis patient. His physician prescribed swimming several times a day as treatment. He built an indoor lap pool with specially designed stairs and a hydrotherapy device. Given these features, the IRS concluded that the pool was specially designed to provide medical treatment.

In one case the IRS tried to limit the cost of a luxury indoor pool built for therapeutic reasons to the least expensive construction. The Tax Court rejected the IRS position, holding that a medical expense is not to be limited to the cheapest form of treatment; on appeal, the IRS position was adopted.

If, instead of building a pool, you buy a home with a pool, can you deduct the part of the purchase price allocated to the pool? The Tax Court said no. The purchase price of the house includes the fair market value of the pool. Therefore, there is no extra cost above the increase in the home’s value that would support a medical expense deduction.

The operating costs of an indoor pool were allowed by the Tax Court as a deduction to an emphysema sufferer.

A deduction is barred where the primary purpose of the improvement is for personal convenience rather than medical necessity.

17.14 Costs Deductible as Business Expenses

In some cases, expenses may be deductible as business expenses rather than as medical expenses. Claiming a business deduction is preferable because the deduction is not subject to the adjusted gross income floor (17.1). However, the cost of a checkup required by your employer is a miscellaneous job expense subject to the 2% of adjusted gross income floor (19.3).

The Tax Court allowed a licensed social worker working as a therapist to deduct psychoanalysis costs as an education expense; see 33.15.

Impairment-related work expenses. Some expenses incurred by a physically or mentally disabled person may be deductible as business expenses rather than as medical expenses. A business expense deduction may be allowed if the expense is necessary for you to satisfactorily perform your job and is not required or used, except incidentally, for personal purposes.

If you are self-employed, claim the deduction on Schedule C (40.6).

If you are an employee, the expenses are listed on Form 2106 and if not reimbursed, entered on Schedule A; see 19.4. The expenses are a fully deductible miscellaneous itemized deduction; the 2% of AGI floor does not apply.

17.15 Long-Term Care Premiums and Services

A qualified long-term care policy provides only for long-term-care services for the “chronically ill” (see below). If you pay premiums for a qualified long-term care policy, you may treat a fixed amount that depends on your age as medical expenses (subject to the AGI floor (17.1) ).

If you, your spouse, or your dependent is chronically ill, you may include as medical expenses your unreimbursed expenses for qualifying long-term-care services.

Did you pay qualifying long-term care services for a chronically ill individual? A chronically ill person is someone who has been certified by a licensed health-care practitioner within the preceding 12 months as being unable to perform for a period of at least 90 days at least two of the following activities without substantial assistance: eating, toileting, dressing, bathing, continence, or transferring. Also qualifying as chronically ill is someone who requires substantial supervision because of severe cognitive impairment, such as from Alzheimer’s disease.

Qualifying long-term-care services for a chronically ill individual are broadly defined as necessary diagnostic, preventive, therapeutic, curing, treating, mitigation, and rehabilitative services, and also maintenance or personal care services. The services must be provided under a plan of care prescribed by a licensed health-care practitioner, who may be a physician, a registered nurse, a licensed social worker, or other individual meeting Treasury requirements. Services provided by a spouse or relative are deductible only if that person is a licensed professional; services provided by a related corporation or partnership do not qualify.

Deductible premium costs of long-term-care policies. Depending on your age at the end of the year, all or part of your premium payments for a qualified long-term-care policy may be included as deductible medical expenses, subject to the AGI floor (17.1).

For 2017, the maximum deductible premium for each person covered under a qualifying policy is: $410 for covered persons age 40 or younger at the end of 2017; $770 for those age 41 through 50; $1,530 for those age 51 through 60; $4,090 for those age 61 through 70; and $5,110 for those over age 70. These limits will likely be increased for 2018 by an inflation factor; see the e-Supplement at jklasser.com.

If you are considering purchase of a long-term-care insurance policy, make sure that it qualifies for the tax treatment explained in this section. A qualified contract must provide only for coverage of qualified long-term-care services for the chronically ill (see above) and be guaranteed renewable; it may not provide for a cash surrender value or money that can be assigned, pledged, or borrowed; it may not reimburse expenses covered by Medicare except where Medicare is a secondary payer or the contract makes per diem payments without regard to expenses.

Benefits paid by qualified long-term-care policies. Benefits from a qualified long-term-care insurance contract (other than dividends) are generally excludable from income. If payments are made on a per diem or other periodic basis, meaning that they are made without regard to actual expenses incurred, there is an annual limitation on the amount that can be excluded. For 2017, per diem payments of up to $360 per day are tax free. If per diem payments exceed the $360 limit, the excess is tax free only to the extent of unreimbursed expenses for qualified long-term-care services. The per diem limit must be allocated among all policyholders who own qualified long-term-care insurance contracts for the same insured.

You should receive a Form 1099-LTC showing any payments to you from a long-term-care insurance contract. Box 3 of Form 1099-LTC should indicate whether the payments were made on a per diem basis or were reimbursements of actual long-term-care expenses. Per diem payments and reimbursements must be reported on Form 8853 to determine if any of the per diem payments are taxable.

17.16 Life Insurance Used by Chronically ill or Terminally ill Persons

A person who is terminally ill may be forced to cash in a life insurance policy to pay medical bills and other living expenses. Insurance companies have developed life insurance policies with accelerated death benefit clauses to help terminally ill patients meet the high cost of medical care. Where a policy lacks an accelerated payment clause, it is also possible to sell a life insurance policy to a viatical settlement company that specializes in buying policies from ill persons who require funds to pay expenses.

Accelerated death benefits and viatical settlement proceeds received by terminally ill individuals are not taxed.

Accelerated benefits from chronically ill person’s life insurance contract. A chronically ill (17.15) individual may sell a life insurance policy to a viatical settlement company to pay for long-term-care costs. However, if accelerated benefits are received on a per diem (or other periodic basis),the rules applied to long-term-care policies (17.15) determine if the proceeds are taxed. Thus, if the proceeds exceed the $360 per diem limit for 2017 and also exceed actual long-term care costs, the excess is taxable on Form 8853. Accelerated life insurance proceeds paid under a long-term-care rider are also subject to these rules (17.15).